American politics

Obamacare and employment

Grim prognosis

THE Affordable Care Act, better known as Obamacare, was supposed to transform American health insurance. Critics have long feared that it would do much more. Republicans have cast Obamacare as a job-killing, economy-crushing villain. Democrats have brushed them off, exalting the law as a blessing to American industry. On February 4th this fiery debate was doused with reason, in the form of a 182-page report from the Congressional Budget Office (CBO). The new data are devastating to Democrats.

The CBO, the government’s nonpartisan number-cruncher, included the figures in its projection of economic growth over the next decade. The CBO estimates that Obamacare will lower full-time employment by 2.3m in 2021, compared with what might have been without reform. That 2.3m drop is nearly three times larger than the CBO’s earlier projection.

The CBO does not give credence to Republicans’ common claim that Obamacare is already reducing employment. Rather, the CBO expects Obamacare to have its biggest impact from 2017. Furthermore, the main reason for the decline is not that employers will slash jobs, but that Americans will choose to work less. Nevertheless, the CBO provides the best case yet that Obamacare will depress work, rather than boost it.

Many factors account for the drop. Top among them is the effect of subsidies for health insurance. To help Americans buy coverage on new health “exchanges”, Obamacare offers tax credits to those earning between 100% and 400% of the federal poverty line (about $11,500 to $46,000 for a single adult). Those tax credits are offered on a sliding scale, by income, so workers effectively pay a higher tax rate as their wages rise. This may dissuade workers from trying to earn more. It also allows a higher standard of living (that is, with health coverage) at a lower income, which may further discourage work.

The expansion of Medicaid, the health programme for the poor, will also affect Americans’ labour supply. In states that expand Medicaid, all those earning up to 138% of the poverty line will be eligible for the programme. Some individuals will work less, so that their lower wages allow them to qualify. In contrast some who already qualified for Medicaid will likely work more, as slightly higher earnings will no longer make them ineligible for coverage.

The effect of Obamacare on employers has been particularly contentious. From 2015 companies with 50 or more employees must provide affordable health insurance to all full-time workers or pay a fine. Republicans claim that this encourages companies to sack employees and switch more to part-time labour. The CBO reports that such anecdotes remain just that. However in future employers may pass Obamacare’s penalty to their workers in the form of lower wages. That meagre compensation may, in turn, prompt workers to supply less labour.

The CBO analyses other provisions, too. For example the higher payroll tax for couples earning $250,000 or more may lower their desire to earn higher wages. Obamacare’s requirement that insurers cover the sick, without raising their rates, may prompt some to retire earlier than they would have otherwise. Democrats will surely point to what the CBO leaves out. For example, the projections do not account for Obamacare’s effect on entrepreneurs—because workers must no longer depend on their employers for health insurance, they may start firms of their own.

But there is little hope that Democrats will successfully spin the new figures to their advantage. A main goal of Obamacare was to help the needy. The new figures are the latest evidence that health insurance may not be the best way to do so. Last month Gary Burtless and Henry Aaron of the Brookings Institution showed how Obamacare redistributes income from the wealthy to the poor, when the measure of income includes the full value of health insurance. But such coverage cannot buy dinner or pay rent.

Recently a few Republicans, playing against type, have offered serious ideas for both helping the poor and reforming health care. Oren Cass, a former advisor to Mitt Romney, has suggested a wage subsidy to pad poor workers’ incomes (unlike the Earned Income Tax Credit, the subsidy would be paid with each paycheck). Marco Rubio, a Republican senator, has backed the idea. And last month three of his colleagues, Richard Burr, Tom Coburn and Orrin Hatch, proposed the most serious alternative to Obamacare yet. Republicans could use the CBO’s numbers merely to bash Obamacare. It would be better if they used this information to dream up something more effective instead.

‘Firstly, it's inexcusable that an institution like the Economist even wants to give the appearance of selling the CBO report as a job killer’’
Darn the Economist for not advancing the progressive talking points! Why’d they have to go and take a rational economic view of the CBO report?! Go get JournOlist on the line, we’ve got a dissenter on our hands, they didn’t provide an economically untrue counter argument against the bad news!

I believe you could be the only one who actually believes that there will be a reduction in Health Care costs, where do you get that idea? If we take the CBO's word for it, the costs will increase from 17% of GNP to 21% of GNP in a few years. How is that a reduction? or are you arguing since the government is paying for it, it doesn't count? People who pay taxes might not agree with the lower cost argument. Higher deductibles will leave more cash in people's pockets? Please, if you are going to be brutally honest, at least be truthful at the same time.

Trying to say that the problems with inequality justifies funneling more health care spending through the insurance companies is merely serving the kool-aid from a 1975 Petrus bottle. Health care spending is out of control, it needs to be reduced. Income inequality is also an issue, and needs its own solution. The ACA does neither.

They should scrap the ACA, force the expansion of Medicaid (just eliminate the part about the state providing part of the funding in the future and they have no choice) to cover anyone not covered through full time employment. This could be funded mostly by an employer tax based on part time wages paid (reduce the incentive to convert full time workers to part time) and by a tax on any household who uses medicaid despite a relatively high income. This way, Medicaid type price controls can be implemented and not have the additional 20% markup insurance companies add to the actual cost of the services provided.
Of course, there are other ideas out there, hopefully one will emerge that will ensure all have access to health care (whether or not they have insurance), and still addresses the issue of runaway health care costs. But I may be a little insane expecting anything reasonable or responsible out of Washington. :)

An economics question: the study indicates the supply of labor will drop. What about the demand for labor? If someone voluntarily leaves the labor pool for whatever reason, but the job is a valid productive job, doesn't the employer need to fill it with someone who is currently not in the labor pool? Maybe these jobs are only marginally contributing and the higher costs associated with ACA will cause them to fall below a threshold where the costs exceed the benefit, but none of this is discussed. I would have my doubts that older workers earning in excess of 250k that choose to leave the workforce because of medical coverage would fall into that category anyway. Would a drop in the supply of labor without a corresponding drop in supply raise wages? Would it increase capital investment to improve productivity?

Okay Democrats, now you're going too far. Yes, it's good that Obamacare reduces lock-in so that people aren't suck with their employers simply because they don't want to lose health insurance. But Obamacare also increased the implicit marginal tax rate on the middle class and that also contributes to the job loss. It will also discourage marriage and encourage divorce by the way. No matter where you stand on the political spectrum, this exists and it's not good. And it's okay to admit this even if you're a left-winger since this problem doesn't exist with single-payer.

""Socializing health care only serves to remove the cost constraints that would otherwise keep it affordable for all even though it may not be as evenly distributed. ""
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No, socializing isn't what allows unconstrained costs, lack of individual payment does that. Which is what happens under insurance plans already. You say that "socialized medicine" causes ever escalating national spending on healthcare, but the US has one of the least socialized systems and the most spending. The most socialized parts of the US healthcare markets (veterans and medicare) are actually the most cost efficient parts of our national healthcare system. All the countries with socialized healthcare spend vastly less than we do, and many have superior results.
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As far as my "altruistic system" I was explaining the tradeoff described as potential by RR, not proposing anything. You stated that you were unable to comprehend what he was talking about. My apologies for mistaking willful ignorance for honest incomprehension.

You got the joke? I'm surprised! The difference between Libertarians & liberals - tolerance. I don't need you to believe as I do, just respect my right to do so. You liberals talk incessantly about the importance of diversity. It's OK to look different, dress different, date & marry different, etc. Yet when others don't be-LIE-ve as you do, you have zero tolerance. How am I possibly more of a hypocrite than you?

The many other idiotic news outlets the Economist got it wrong. People will voluntarily leave jobs they despise or retire early because now that can have health care. You know people will have greater freedom? Paul Ryan actually thought this a great idea until Obamacare became law and now Paul Ryan hates Paul Ryan's own ideas. The Economist is run by stupid Republicans apparently.

Wait a minute - what's this? Another "extension"? But, but, but, I thought it was suddenly performing as expected? I guess all that linebacker induced concussive brain damage won't be addressed by the new system anytime soon. Shucks! I so wanted to be labotoimized into being a be-LIE-ver!

However, this law allows him to purchase insurance from an independent company by pooling risk and preventing these companies from denying him coverage based on age and health concerns. Seems quite capitalist to me. It certainly did to those in the republican party who invented it.

I know well the issue of entrepreneurship and health insurance. For many potential entrepreneurs, leaving a secure job and risking a paycheck AND health insurance to start a business is simply too big a risk for their families.

Of course, if they were among the 1% who don't need their current income, perhaps the equation would be different, but that leaves 99% who have to include the health-insurance consideration.

And while perhaps you aren't intentionally misusing the data in the report, it says,
"In CBO’s judgment, there is no compelling evidence that part-time employment has increased as a result of the ACA. On the one hand, there have been anecdotal reports of firms responding to the employer penalty by limiting workers’ hours, and the share of workers in part-time jobs has declined relatively slowly since the end of the recent recession. On the other hand, the share of workers in part-time jobs generally declines slowly after recessions, so whether that share would have declined more quickly during the past few years in the absence of the ACA is difficult to determine.

"In any event, because the employer penalty will not take effect until 2015, the current lack of direct evidence may not be very informative about the ultimate effects of the ACA."

The CBO also updated its previous expectation of some jobs losses in the early days of implementation with "in the short term (2014 to 2016) the law will increase employment while the economy is still weak."

How about reducing work hours because of taxes? How about of reducing work hours in order to qualify for subsidies that other people pay for? Are you saying these are good things? If so I would love to hear the economic rationalization how government incentives for less work help grow the economy. Also, the example you mentioned was not the conclusion of the CBO’s report.